Segment Information

3 Months Ended

Mar. 31, 2021

Segment Reporting [Abstract]

Segment Information

We operate under the Itron brand worldwide and manage and report under three operating segments: Device Solutions, Networked Solutions, and Outcomes.

We have three GAAP measures of segment performance: revenues, gross profit (gross margin), and operating income (operating margin). Intersegment revenues are minimal. Certain operating expenses are allocated to the operating segments based upon internally established allocation methodologies. Corporate operating expenses, interest income, interest expense, other income (expense), and the income tax provision (benefit) are neither allocated to the segments, nor are they included in the measure of segment performance. In addition, we allocate only certain production assets and intangible assets to our operating segments. We do not manage the performance of the segments on a balance sheet basis.

Segment Products

Device Solutions – This segment primarily includes hardware products used for measurement, control, or sensing that do not have communications capability embedded for use with our broader Itron systems, i.e., hardware-based products not part of a complete "end-to-end" solution. Examples from the Device Solutions portfolio include: standard endpoints that are shipped without Itron communications, such as our standard gas, electricity, and water meters for a variety of global markets and adhering to regulations and standards within those markets, as well as our heat and allocation products; communicating meters that are not a part of an Itron end-to-end solution such as Smart Spec meters; and the implementation and installation of non-communicating devices, such as gas regulators.

Networked Solutions – This segment primarily includes a combination of communicating devices (e.g., smart meters, modules, endpoints, and sensors), network infrastructure, and associated application software designed and sold as a complete solution for acquiring and transporting robust application-specific data. Networked Solutions includes products and software for the implementation, installation, and management of communicating devices and data networks. Examples from the Networked Solutions portfolio include: communicating measurement, control, or sensing endpoints such as our Itron® and OpenWay® Riva meters, Itron traditional ERT® technology, Intelis smart gas or water meters, 500G gas communication modules, 500W water communication modules; GenX networking products, network modules and interface cards; and specific network control and management software applications. The Industrial Internet of Things (IIoT) solutions supported by this segment include automated meter reading (AMR), advanced metering infrastructure (AMI), smart grid and distribution automation, smart street lighting and an ever-growing set of smart city applications such as traffic management, smart parking, air quality monitoring, electric vehicle charging, customer engagement, digital signage, acoustic (e.g., gunshot) detection, and leak detection and mitigation for both gas and water systems. Our IIoT platform allows all of these industry and smart city applications to be run and managed on a single, multi-purpose network.

Outcomes – This segment primarily includes our value-added, enhanced software and services in which we manage, organize, analyze, and interpret data to improve decision making, maximize operational profitability, drive resource efficiency, and deliver results for consumers, utilities, and smart cities. Outcomes places an emphasis on delivering to Itron customers high-value, turn-key, digital experiences by leveraging the footprint of our Device Solutions and Networked Solutions segments. The revenues from these offerings are primarily recurring in nature and would include any direct management of Device Solutions, Networked Solutions, and other products on behalf of our end customers. Examples from the Outcomes portfolio include: our meter data management and analytics offerings; our managed service solutions including Network-as-a-Service (NaaS) and Platform-as-a-Service (PaaS), forecasting software and services; our Distributed Intelligence suite of applications and services; and any consulting-based engagement. Within the Outcomes segment, we also identify new business models, including performance-based contracting, to drive broader portfolio offerings across utilities and cities.

Revenues, gross profit, and operating income associated with our operating segments were as follows:

	Three Months Ended March 31,
In thousands	2021		2020
Product revenues
Device Solutions	$	170,331	$	200,168
Networked Solutions	258,703		315,437
Outcomes	13,770		12,532
Total Company	$	442,804	$	528,137
Service revenues
Device Solutions	$	2,450	$	2,111
Networked Solutions	29,611		25,408
Outcomes	44,709		42,759
Total Company	$	76,770	$	70,278
Total revenues
Device Solutions	$	172,781	$	202,279
Networked Solutions	288,314		340,845
Outcomes	58,479		55,291
Total Company	$	519,574	$	598,415
Gross profit
Device Solutions	$	32,296	$	32,367
Networked Solutions	112,759		121,750
Outcomes	21,989		17,449
Total Company	$	167,044	$	171,566
Operating income (loss)
Device Solutions	$	21,701	$	18,198
Networked Solutions	79,291		88,680
Outcomes	10,336		8,198
Corporate unallocated	(80,388)		(88,706)
Total Company	30,940		26,370
Total other income (expense)	(12,699)		(9,658)
Income (loss) before income taxes	$	18,241	$	16,712

For the three months ended March 31, 2021, no customer represented more than 10% of total company revenue. During the three months ended March 31, 2020, one customer represented 11% of total company revenues.

Revenues by region were as follows:

	Three Months Ended March 31,
In thousands	2021		2020
United States and Canada	$	325,536	$	385,325
Europe, Middle East, and Africa	160,369		166,984
Asia Pacific and Latin America(1)	33,669		46,106
Total Company	$	519,574	$	598,415

(1) On June 25, 2020, we sold our Latin American operations. We continue to sell into the region through an exclusive distributor.

Depreciation expense is allocated to the operating segments based upon each segment's use of the assets. All amortization expense is recognized within Corporate unallocated. Depreciation and amortization of intangible assets expense associated with our operating segments was as follows:

	Three Months Ended March 31,
In thousands	2021		2020
Device Solutions	$	6,188	$	6,435
Networked Solutions	4,275		3,737
Outcomes	1,234		1,393
Corporate unallocated	10,113		12,466
Total Company	$	21,810	$	24,031